What is underwriting, anyway?
Understanding what it means can help you find the right kind of life insurance for you and your family.
Haven Life and its approach to life insurance (innovative use of technology; providing an experience that is quick and pleasant) are new, but the concept of insurance itself is very old, dating back to around 3000 B.C., when Babylonian traders and merchants started pooling money in order to protect themselves financially against loss (which was often caused by pirates). During the intervening 5,000 years, insurance products have become more sophisticated, but underwriting has remained at its core.
This raises two questions: What is underwriting, anyway? And how does it affect you?
“Underwriting is evaluation of risk,” says Laura Boylan, Haven Life’s head of underwriting services. Essentially, an insurance underwriter assesses the riskiness of an applicant, determines whether their company should insure that person, at what price, and for what amount of coverage. “This is true for all kinds of insurance,” says Laura, including home, where the “risk” would be damage to a property; auto (damage to a vehicle); and, of course, life insurance, where the thing underwriters call “risk” is usually referred to as “death” by the rest of us.
While the idea is simple (evaluate risk, attach a price to it), the risk assessment and underwriting process has become especially complex in recent decades. The modern life insurance policy began with the industrial revolution in the 1800s, but the underwriting process was fairly basic until the 1940s. Until then, insurance premiums were based entirely on age. After that, insurers started considering gender, too (male mortality rates are generally higher than female rates). With the advent of more technology and more data from the second half of the 20th century onwards, however, the range of factors which insurers consider has expanded, as has their ability to consider them in detail.
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Underwriting, and insurance in general, is based on “the law of big numbers,” says Laura. “We can’t know an individual’s level of risk precisely, but we can get a good level of precision for a group of people if the group is large enough.” Therefore, insurers look at an individual in terms of age, health, behavior and other factors, then assign that person to a particular “risk bucket.” These are called “rate classes” in the insurance world. While you are offered an insurance policy tailored to you, it’s actually based on the rate class that you’ve been assigned to, based on your individual data.
So what do insurers assess in order to put people into rate classes, and therefore determine the policy you’ll be offered?
Your physical health
Physical health is also another factor that is considered in underwriting guidelines. “For life insurance underwriting we’re looking at a number of dimensions, one of which is medical,” says Laura. “We take self-reported medical histories, data such as prescription history, family history, tobacco use, and evaluate it all to get a deeper understanding of applicant health.” Sometimes a medical exam will form part of that data, although “at Haven Life life we have a no-medical exam process that allows some applicants to be issued an offer in as little as 40 seconds. It’s a wonderful experience for people that qualify,” says Laura. For those applicants who do require an exam, she has some useful advice: “Just because you might need to do a medical exam, it doesn’t necessarily mean your premium will be higher — it just means the company doesn’t have enough specific information to be confident in its decision without fluids.
Your financial health
“There’s also a financial element to your risk assessment: making sure an insurance policy is appropriate for an individual’s financial situation,” says Laura. Obviously, an insurance company wants to know an individual has the income to afford their premium, but beyond that, can a person be over-insured? “We want to make sure the death benefit is appropriate,” says Laura, “just to make sure all the incentives are aligned appropriately.”
Another factor considered by underwriters is behavior, which includes “driving history, occupational history and hobbies,” says Laura. Unsurprisingly, a firefighter who races motorcycles in his spare time will usually pay more for life insurance coverage than someone who works in an office and spends weekends in their garden. But for less extreme examples, isn’t the idea of dangerousness subjective? How do insurance companies define “risky”? “It’s a combination of different data from different industries and different levels of expertise,” says Laura. “For example, at Haven Life we have doctors on staff who evaluate specific diseases and how they relate to risk. Each individual situation is different. That can be as nuanced as, for a certain type of cancer, looking at the size and grading of a tumor and the probable progression of that disease. When it comes to behavioral risk — factors like driving history and hobbies — there is also data that correlates those types of things with mortality. The life insurance industry as a whole has a tremendous amount of data correlating those inputs to mortality outcomes going back decades.”
However, while “on the majority of things there’s pretty clear consensus on what’s risky and what’s not, insurers take slightly different perspectives at the margins,” says Laura. “Some carriers are very risk averse for certain hobbies. It might have just been one claim they saw [which made them that way]. By the same token, some carriers feel they have the data to support a looser stance on a specific risk. Sometimes it might come down to having a specific insurance underwriter or physician at your company that really has the expertise you need to evaluate a specific risk. There are also just different philosophies at different companies. Marijuana use is an example where, over time, different companies have moved at different speeds. Some carriers take a conservative approach and others have loosened up as it becomes legal in more states.”
These “different perspectives at the margins” mean that if you’re a life insurance outlier — risky behavior or job; difficult medical situation — it’s best to shop around. Says Laura: “For people that have serious medical conditions there are specific insurance brokers that make their living by knowing the differences between different carriers and helping high risk applicants find the carrier that will view them most favorably.”
Even if you’re not a high-risk applicant, we would always suggest you shop around for the best price and service before choosing your life insurance policy. A little extra time up front can pay off considerably when it’s time to select your coverage.
It’s important to be honest in the application process. The issuance of the policy or payment of benefits may depend upon the truthfulness of answers you give in the application.
About Michael DavisRead more by Michael Davis
Our editorial policy
Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
MassMutual is rated by A.M. Best Company as A++ (Superior; Top category of 15). The rating is as of Aril 1, 2020 and is subject to change. MassMutual has received different ratings from other rating agencies.
Haven Life Plus (Plus) is the marketing name for the Plus rider, which is included as part of the Haven Term policy and offers access to additional services and benefits at no cost or at a discount. The rider is not available in every state and is subject to change at any time. Neither Haven Life nor MassMutual are responsible for the provision of the benefits and services made accessible under the Plus Rider, which are provided by third party vendors (partners). For more information about Haven Life Plus, please visit: https://havenlife.com/plus.html
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I was pleased with my rate quote and the ability to choose different amounts after I was approved. Haven scheduled my exam quickly and their website is easy to navigate during the process. I know underwriting takes time as to ensure a client is insurable, but I felt my underwriting process was quite lengthy. Part of it was my doctor had retired and getting medical records took some time on the clinic's end. I would have liked for Haven to be more proactive in informing me more about the details of the delays, but they did so when I contacted them. Customer service was very courteous. Underwriting was very thorough evidently, but I am fine with that as it allowed me to get preferred rates. I would recommend Haven to a friend. If the communication would have been more proactive and the process a little less lengthy (it was about 3 months start to finish), I would rate them 5 stars
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